England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM EPSOM COUNTY COURT
(HHJ HULL)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 23rd November 2000

The Vice-Chancellor:

1. In January 1999 the claimant, Mrs Wilson, wished to raise a six month loan of £5,000 on the security of her car, a BMW 318 convertible registration number J336CYP. She approached the defendant ("FCT"), a pawnbroker, for that purpose. FCT charges a variable document fee in respect of such loans, in this case set at £250. Mrs Wilson was unable or unwilling to pay the fee immediately. Accordingly the amount of the fee was added to the amount of the loan. FCT charged and Mrs Wilson agreed to pay interest on the loan of £5,250 monthly at the rate of £304.50. The loan was repayable on 21st July 1999. At the conclusion of the transaction Mrs Wilson left the premises of FCT with £5,000 but without her car.
2. It is not disputed that the agreement made between Mrs Wilson and FCT on 22nd January 1999 is a regulated agreement for the purposes of s.8 of the Consumer Credit Act 1974. As such its terms had to be recorded in a written agreement as provided for in ss. 60 and 61. Accordingly on 22nd January 1999 Mrs Wilson and FCT executed a document described as "Credit Agreement and Pawn Receipt regulated by the Consumer Credit Act 1974". In five boxes along the top there was set out the amount of the document fee, £250, the amount of the loan, £5,250, the date of the agreement, 22nd January 1999, the contract number, 1849, and the redemption date, 21st July 1999. After the name, address and licence number of the pawnbroker, FCT, and the name and address of the debtor, Mrs Wilson, the document recorded that the latter had deposited with the former the property specified in the schedule, which contained details of the BMW,

"as security for a loan of £5,250 together with interest at the monthly rate of £304.50 (5.80%)"

The document then continued

"The total payable under this agreement for a full period of six months is £7,327.00

as follows

(a) payable on issue of this document

charge for issue (4.76%) 250.00

(included in the Annual Percentage Rate and Total Charge for Credit set out below)

(b) payable on redemption – Loan 5250.00

- Interest 1827.00

TOTAL 7327.00

Earlier redemption is permitted on payment of interest calculated at the monthly rate for each calendar month of the period of loan and part of a calendar month shall count as a calendar month.

The Total Charge for Credit for the

Full period of six months is £2077

The Annual Percentage Rate for

This agreement is 94.78%

The document recorded that the loan was for six months and was governed by the Consumer Credit Act 1974 and the provisions printed thereon. It was signed by or on behalf of both parties.

3. Mrs Wilson did not repay the loan on 21st July 1999. On 23rd July FCT sought payment of £7,381.50 in default of which the BMW might be sold. The response of Mrs Wilson was to institute these proceedings in the Kingston upon Thames County Court on 12th August 1999. She claimed (1) a declaration that the agreement was unenforceable under the Consumer Credit Act 1974 as it failed to contain the "Prescribed Terms" under s.61 of the Act and the Consumer Credit (Agreements) Regulations 1983 Schedule 6, (2) that the court should reopen the credit agreement on the ground that interest at 94.78% was grossly exorbitant and (3) an injunction restraining FCT from selling her BMW pending the resolution of the dispute.
4. An injunction was granted ex parte on 12th August. The trial of the other issues came before HH Judge Hull QC in September. By his order made on 24th September 1999 Judge Hull rejected the first contention but acceded to the second. He reopened the agreement and substituted a monthly interest charge of £175 for the agreed rate of £304.50 and permitted Mrs Wilson to redeem her car on payment of £6,650 (being the loan of £5250 with 8 months interest) on or before noon on 1st October 1999. In addition he gave Mrs Wilson permission to appeal. Notice of appeal was given on 18th October. Subsequently Mrs Wilson redeemed her car on payment to FCT of £6,900 on 17th December 1999.
5. This is the appeal of Mrs Wilson from the order of Judge Hull rejecting the first of her claims. She seeks (1) a declaration that (a) the Agreement dated 22nd January 1999 and (b) the loan of £250 made on the same day are unenforceable and (2) an order for repayment of £6,900 with interest at 8% pa from 17th December 1999 until repayment. There is no cross-appeal of FCT from the order of Judge Hull reopening the transactions.
6. To explain the basis of the judge's conclusions and the argument of Mrs Wilson on this appeal it is necessary to consider provisions of the Consumer Credit Act 1974 and certain regulations made thereunder in some detail. Pt II of the Act contains a number of provisions explaining or defining various concepts used in the Act generally. As I have indicated it is not disputed that the agreement made on 22nd January 1999 between Mrs Wilson and FCT is a regulated agreement for the purposes of s.8. S.9 defines the word "credit". It provides, so far as material,

9 Meaning of credit

(1) In this Act 'credit' includes a cash loan, and any other form of financial accommodation.

[(2) and (3)]

(4) For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment.

S.20 requires the Secretary of State to make regulations containing provisions for determining the true cost to the debtor of the credit provided to him, defined as the "total charge for credit". The regulations made pursuant to that requirement are the Consumer Credit (Total Charge for Credit) Regulations 1980 SI No.51. By Regulation 4 amongst the items to be included in the computation of the total charge for credit are

"(a) the total of the interest on the credit which may be provided under the agreement;

(b) other charges at any time payable under the transaction by or on behalf of the debtor....whether to the creditor or some other person;"

Regulation 5 excludes specified items but it is not suggested that any of them is relevant to this appeal.

7. Mrs Wilson contends, and Judge Hull agreed, that the document fee of £250 was an item going to make up the total charge for credit. She points out that such total charge was correctly recorded in the agreement as £2077.00 made up by interest of £1827.00 and the document fee of £250. Mrs Wilson then submits that the amount of the document fee cannot, because of the express terms of s.9(4), be taken into account in ascertaining the amount of the credit. She contends that she did not pay the fee at the time of the agreement. She submits that the arrangements between her and FCT in that respect should be regarded as a linked transaction, as defined in s.19.
8. Pt V of the Act deals with, amongst other things, the conclusion of credit agreements. Ss.55 to 59 deal with preliminary matters, ss. 60 to 66 with the making of the agreement and ss.67 to 73 with the cancellation of agreements. S.60 imposes on the Secretary of State the duty of making regulations as to the form and contents of documents embodying regulated agreements. The regulations made thereunder, the Consumer Credit (Agreements) Regulations 1983 SI 1983 No:1553, provide, by Schedule 1 para 7, that agreements for fixed term credit, such as the agreement in this case, must specify "The amount of the credit to be provided under the agreement". By virtue of Regulation 6 and Schedule 6 para 2 such information in relation to such an agreement is a prescribed term for the purposes of s.61. Mrs Wilson relies on the fact that the agreement nowhere specifies the "amount of the credit to be provided under the agreement". It specifies the amount of the loan £5,250 but, she contends, that cannot be the amount of the credit because it includes the £250 document fee and such inclusion is prohibited by s.9(4).
9. By s.61

"(1) A regulated agreement is not properly executed unless –

(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner, and

[(b) and (c)]"

Mrs Wilson contends that the agreement signed by her and FCT on 22nd January 1999 did not contain all the prescribed terms because the total amount of the credit was not stated. Accordingly she relies on s.65(1) which provides that

"an improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."

10. Part IX deals with judicial control and the enforcement of regulated agreements and securities. S.127, so far as material, provides

"127 Enforcement orders in cases of infringement

(1) In the case of an application for an enforcement order under –

(a) section 65(1) (improperly executed agreements), or

(b) section 105(7) (a) or (b) (improperly executed security instruments), or...

[(c) and (d)]

the court shall dismiss the application if, but (subject to subsections (3) and (4) only if, it considers it just to do so having regard to-

(i) prejudice caused to any person by the contravention in question, and the degree of culpability for it; and

(ii) the powers conferred on the court by subsection (2) and sections 135 and 136.

(2) If it appears to the court just to do so, it may in an enforcement order reduce or discharge any sum payable by the debtor or hirer, or any surety, so as to compensate him for prejudice suffered as a result of the contravention in question.

(3) The court shall not make an enforcement order under section 65(1) if section 61(1) (a) (signing of agreements) was not complied with unless a document (whether or not in the prescribed form and complying with regulations under section 60(1)) itself containing all the prescribed terms of the agreement was signed by the debtor or hirer (whether or not in the prescribed manner)."

Mrs Wilson relies on the provisions of subsection (3). She submits that as the agreement failed to contain a statement as to the total amount of credit and as such a statement is a prescribed term then, in accordance with s.127 (3) the Court was precluded from enforcing the agreement which, in the absence of such enforcement, is, by virtue of s.65 (1), unenforceable altogether.

11. Part VIII deals with security. S.113 is designed to prevent evasion of the Act by the use of securities. Subsection (1) provides that a security shall not be enforced so as to provide the creditor with any benefit with regard to the amount, time or manner of repayment greater than the benefit he would have enjoyed if security had not been provided. Subsection (2) provides that where a security has been given in relation to a regulated agreement it should be enforceable

"where such an order has been made in relation to the agreement but not otherwise."

By subsection (3)(d) if an order for enforcement under s.65 is refused then s.106 applies with regard to any security provided in relation to that agreement. S.106 provides that in such a case

"(a) the security...shall be treated as never having effect;

(b) any property lodged with the creditor...shall be returned by him forthwith;"

Mrs Wilson contends that in accordance with all those provisions if she is right about the unenforceability of the agreement the inevitable consequence is that the security over her car was always ineffective, it should have been returned to her on demand and the sum of £6,900 with interest should be refunded to her.

12. Judge Hull QC agreed with Mrs Wilson that the document fee, payable at the outset, was part of the total charge for credit. But he rejected the rest of her argument on the first point. He said (transcript pages 8G-11B):

"I have come to the conclusion, after considerable reflection, that the basis of Mrs. Wilson's argument is wholly fallacious. She was in fact and in law in receipt of credit of £5,250 and was lent that sum. Section 9(4) provides only that:

"An item entering into the total charge for credit shall not be treated as credit, even though time is allowed for its payment."

This subsection is concerned with something quite different from that which I am concerned with. The item with which I am concerned is the £250 to be paid or, in the present case, treated as paid at the outset. Of course, it is part of the total charge for credit. It will remain part of that charge, even if the creditor allows time for the payment of it. It happens that the £250 was in fact paid out of the £5,250 lent to Mrs. Wilson for her convenience, and at her request, but it does not reduce that credit.

I am assisted in considering this by an alternative scenario. Suppose Mrs. Wilson has approached the defendants with £250 of her own, paid their document fee, and taken the loan she wanted of £5,000. Clearly the £250 would not be part of the credit, even if the defendants had said it could be paid a month later. I quote:

"It shall not be treated as credit."

I do not see, however, how it could rationally be said that the credit given was only on that basis £4,750. This is not what section 9(4) says. If it were the true meaning of this statute what would be the effect if the terms of a one year loan of £5,000 included payment of, say, £500 per calendar month for expenses in addition to interest? Clearly the total charge for credit would be enormous. Would a loan of £5,000 then be reduced by the operation of the section from the beginning to a minus figure, so that the credit was zero, or less, and the annual percentage rate infinitely large?

To take a more realistic example; suppose the defendants had agreed to the document fee being paid one week, or one month, or six months, after the execution of the agreement and the making of the loan. It would follow from Mrs. Wilson's argument that the loan would still be £5,000, and not £5,250, at any rate if she could show that she needed the extra £250 to pay the document fee when she became liable to pay it.

The fallacy in Mrs. Wilson's argument is this. The £250 which she paid by set-off as a document fee is, of course, part of the total charge for credit. It is not the same thing as the £250 which was lent to her on the same occasion as part of her loan. That is not part of the total charge for credit. I am aware that certain passages in Goode suggest that the learned author may take a different view. I say, in parenthesis, that that was also suggested as a possibility by the Office of Fair Trading. But if that is so, I disagree with Goode and I note that in Dimond v Lovell [1991] 3 WLR 561, 573, 574, the Vice-Chancellor, at paragraphs 64 and 67, twice differs from the views expressed in Goode on another aspect of the provision of credit. The other two Lords Justices agreed with the Vice-Chancellor.

Under Mrs. Wilson's argument the £250, treating it as a single entity, instead of two separate payments of £250, as I believe it must be, leads a double life, very useful in law to the borrower. First, it goes to reduce the amount of the loan. Then it goes to increase the amount of the total charge from credit, both in its own right, when viewing the total charge as a percentage and by reducing the amount of the loan, so increasing still further the statutory annual percentage rate. I find this quite illogical. If the loan were only £5,000 why should the £250, which on this basis Mrs. Wilson neither received, nor paid, be part of the charge for credit? Of course, she was being asked to repay it after six months in the £5,250 which was then to be repaid, but this was on the basis, wholly erroneous she says, that she had in fact borrowed £5,250. She could have insisted, if she is right, that the agreement be rectified to provide for repayment of £5,000 and interest only.

The whole argument could hardly have been better formulated by Lewis Carroll who was, of course, in real life a professional mathematician.

I therefore reject the contrary views, if such they are, expressed in Goode, relying in part on the reductio ad absurdum which Mrs. Wilson's argument produces and in part on the plain language of section 9(4).

It follows that I must reject Mrs. Wilson's contention and her assertion that the agreement is void and unenforceable."

13. Before Judge Hull QC Mrs Wilson appeared in person. Before us she was represented by Mr Martin Young pro bono publico. He acknowledged that his submissions were the product of the research and ability of Mrs Wilson. We are indebted to Mr Young for the assistance he has given us not only on behalf of Mrs Wilson but also in performance of his duty as counsel to bring to the attention of the court points which may militate against his case of which the other, unrepresented, party may be unaware. He helpfully guided us through the legislation both primary and secondary. His case, in short, is

(1) the agreement wrongly showed the amount of the credit to be £5250 when the correct figure was £5,000; in consequence,

(2) the agreement did not contain the term stating the amount of the credit prescribed by the regulations made under s.60 so that the agreement was improperly-executed pursuant to s.61(1)(a); in consequence,

(3) the agreement could only be enforced by the court under s.65; but

(4) such enforcement was prohibited by s.127(3) because the prescribed term as to the amount of the credit was not included; so that

(5) S.113(3) and 106(a) invalidated the security because the application to enforce was not dismissed on technical grounds.

14. FCT appeared before the judge by Mr Jones, one of its directors. Before us FCT was represented by Mr Jones and one of its employees, Mr Atkins. The argument for FCT was presented to us both in writing and orally by Mr Atkins. We were concerned that this appeal raised points of some considerable general importance in this field on which we would have welcomed detailed legal submissions. But we were not asked to adjourn the hearing so that FCT might be represented. Further the evidence showed that at an earlier stage the problem had been referred by FCT to its trade association, which, we assume, could have participated in the defence of the claim if it had wished. It is right, nevertheless, to express to Mr Atkins our appreciation of the clear and concise way he explained the case for FCT. It is quite simply that the total amount of credit was £5,250, it was correctly shown in the agreement so that none of the alleged consequences followed. Notwithstanding our invitation to do so Mr Atkins did not address argument on any of the subsequent stages of the argument for Mrs Wilson on the assumption for the purposes of that argument that he was wrong.
15. Accordingly the crucial issue is what was the amount of the credit provided to Mrs Wilson by FCT. The word "credit" is defined in s.9(1) as including a cash loan and any other financial accommodation. Though the subsection uses the familiar technique of definition by inclusion I find it hard to envisage anything properly described as credit not included in either "a cash loan" or "any other form of financial accommodation". It was submitted by counsel for Mrs Wilson that the amount of £250 by which the loan was increased to enable Mrs Wilson to pay the document fee was not "credit" for the purposes of the Act. He relied on the fact that such amount was never available to Mrs Wilson to spend as she might think fit but was applied immediately in the discharge of her liability to pay the document fee on the issue of the loan agreement.
16. I do not accept this submission. The term "credit" is used in connection with a restricted use credit. Such a credit, as defined in s.11, is one under which the borrower is not able to use the loan for any purpose he pleases. To accept counsel's suggested limitation on the term would make it inapplicable to a restricted use credit to which it is evidently intended to apply. It is unnecessary to decide whether it was a cash loan applied immediately in the discharge of the borrower's liability because, obviously, it did constitute financial accommodation to Mrs Wilson.
17. Counsel for Mrs Wilson submitted that even so s.9(4) required that the amount of £250 by which the loan was increased should not be treated as credit because it was "an item entering into the total charge for credit". This was the submission that the judge rejected. Mr Atkins supported the judge's view. As he forcibly pointed out there is all the difference in the world between paying [a charge] and receiving [a credit]. There is, in my view, considerable force in this submission. One of the normal meanings of the word "item" is "an entry in an account". In any account kept by Mrs Wilson or by FCT the debit or credit for the charge would be different from the credit or debit for the loan. Each would be a separate item in the accounts.
18. But the provisions of s.9(4) must be construed and applied in the context of the Act as a whole. The term "credit" is fundamental to the operation of the Act. I take the two instances referred to in argument. First, the amount of the credit determines (s.8) whether the agreement is one to which the Act applies at all. If the amount of the credit is inflated by increasing the loan to cover the charges payable to the lender then particular agreements may escape the regulation Parliament intended. Cf Huntpast Ltd v Leadbetter [1992] CCLR 15. Second, the Act was designed for the protection of the consumer. One aspect of that protection was to bring home to the debtor the true cost of his borrowing. See for example s.60(1)(b). This cost was to be expressed as an annual percentage rate of the amount of the credit. The details of how this is to be done are contained in the Consumer Credit (Total Charge for Credit) Regulations 1980 SI 1980 No.51. Regulations 4 and 5 prescribe what is or is not to be taken to be included in the total charge for credit. It is not disputed that the document fee of £250 is to be included. Regulation 6 requires the total charge for the credit to be expressed as the annual percentage rate determined in accordance with those regulations. They are extremely complicated. For present purposes it is sufficient to appreciate that in the case of a fixed sum credit repayable in a single sum, such as the loan made to Mrs Wilson, one element in the calculation is a vulgar fraction of which the numerator is the total charge for credit and the denominator is the amount of the credit. If, in the words of s.9(4), "an item entering into" the calculation of "the total charge for credit" for the purposes of ascertaining the numerator is also brought into the calculation of the denominator then that part of the charge will not be reflected in the annual percentage rate. In this case the annual percentage rate increases, if Mrs Wilson is right, from 94.78% to 99.66%.
19. It is apparent from these two considerations that s.9(4) must be applied without too narrow an interpretation of the word "item". If a charge for credit is correctly recognised in accordance with the detailed regulations to which I have referred then any cash loan or other financial accommodation made or afforded by the creditor to the debtor for the purpose of discharging the liability for that charge should not be treated as part of that credit to which the total charge for credit relates. It may be, though it is unnecessary to any decision in this case, that the loan made to pay the charge is itself a separate credit which should be made the subject of a regulated agreement to which the Act applies, whether as a linked transaction within s.19 or otherwise.
20. For all these reasons I accept the submission made on behalf of Mrs Wilson. It follows that in my view the judge's conclusion was wrong in law. What then is the consequence? As I have indicated we do not have the benefit of the views of the judge or of any argument on behalf of FCT on the assumption that they were wrong on the application of s.9(4). But it is necessary to consider the matter in detail. I would not wish to arrive at a conclusion which permits Mrs Wilson both to retain her car and to recover £6,900 unless the statutory provisions leave no alternative.
21. The Consumer Credit (Agreements) Regulations 1983 SI 1983 No.1553 made under s.60 lay down in detail what information is to be contained in a regulated agreement and, in some cases, the form it should take. Schedule 1 specifies the information to be given in the various types of agreement with which the Act is concerned. Some, but not all, of that information is prescribed by Regulation 6 for the purposes of s.61(1)(a). In the case of this agreement prescribed information includes (Schedule 6 para 2) "a term stating the amount of the credit". It is accepted that the reference in the agreement to "loan" both in the box and in the body of the document is a sufficient reference to credit. But the amount of the credit is not properly shown because the figure should be £5,000 not £5,250. It must follow, and I accept, that the agreement was not properly executed (s.61(1)(a)) and could only be enforced by an order of the court under s.65.
22. For Mrs Wilson it is contended that such enforcement is precluded by s.127(3). That subsection draws a distinction between the three reasons why an agreement may be improperly executed under s.61(1)(a). In the case of a failure to use the prescribed form or to comply with the regulations the enforceability of the agreement is left to the discretion of the court. By contrast, if the agreement fails to contain a prescribed term it cannot be enforced by the court whatever the circumstances. Given my finding that the agreement did not contain "a term [correctly] stating the amount of the credit" then the agreement is unenforceable by any means. But this conclusion causes me concern. What of the cases of innocent mistake where the amount is wrongly inserted into the computer generated term? Might it not be sufficient compliance if the term states a figure even if wrong? Consideration of all the other prescribed terms set out in Schedule 6 to The Consumer Credit (Agreements) Regulations 1983 SI 1983 No.1553 forces me to the conclusion that the information must be correctly given. In cases of an obvious mistake the court may either construe the agreement ignoring the obvious error or rectify it. Snell's Principles of Equity 30th Edition para 43-05. But it is not suggested in this case that the amount of the loan was completed by mistake, quite the opposite. Accordingly I conclude that the agreement is and always was unenforceable.
23. The consequence of that conclusion is prescribed by s.113(3). The application for enforcement made in FCT's defence must be dismissed because of s.127(3). Unless it can be said that the dismissal is "on technical grounds only" then s.106 applies. That section provides that the security shall be treated as never having had effect. By s.189(1) and (5) it is for the court dismissing the application to determine and certify whether the dismissal was on technical grounds only. Whether or not a ground is technical may depend on all the circumstances. It might be said that, depending on those circumstances, dismissal of the application to enforce because of the requirement in s.127(3) may be technical. I have great difficulty in seeing how reliance on a ground prescribed by Parliament can be treated as technical in the sense of permitting the court to override it. But it is unnecessary to reach a concluded view on that point. If it be assumed that the ground is technical and is so certified then the consequence is that s.106 would not apply. But in that event s.113(1) and (2) would preclude the enforcement of the security so as to provide for payments to the creditor to any greater extent than are permitted by the agreement. But as the agreement is unenforceable so is the security.
24. A similar situation arose in the recent case of Dimond v Lovell [2000] 2 WLR 1121. In that case a replacement car hire agreement was found to be a regulated agreement for the purposes of Consumer Credit Act 1974 and to be unenforceable precisely because the prescribed terms were not included. As Lord Hoffmann said (p.1131) the effect of s.127(3) was to render the agreement irredeemably unenforceable. An alternative claim for unjust enrichment was also rejected (pp.1131G and 1139D) on the ground that it could not be said to be unjust when it was precisely the consequence prescribed by Parliament.
25. For all these reasons I conclude that the orders which Mrs Wilson seeks, which I have summarised in Paragraph 5 above, are those for which, prima facie, the Consumer Credit Act 1974 provides. The result was approved in the House of Lords in Dimond v Lovell [supra] as recently as 11th May 2000. But since then the much heralded Human Rights Act 1998 has come into force. Neither party relied on it. But that does not absolve this court from considering its application. It appears to me that there may be some question whether the provisions of s.127(3) Consumer Credit Act 1974 are compatible with convention rights.
26. The question arises from the terms of s.61(1), 65 and 127 to which I have referred in paragraphs 9 and 10. It is apparent from the terms of s.61(1) that there are several grounds on which a regulated agreement may be "not properly executed" so as to require enforcement by court order under s.65. The restrictions on such enforcement contained in s.127 are in two forms; the first (s.127(1) and(2)) leaves it to the discretion of the court, the second contained in s.127(3) is an absolute bar if the regulated agreement did not contain the prescribed terms. I find it hard to understand why if it is appropriate to confer on the court the discretion permitted by s.127(1) and (2) it is proportionate to provide an absolute bar in the one case to which s.127(3) applies. Why in the latter case should the agreement, and any security for the loan, be unenforceable because it failed to specify the amount of the credit to be provided under the agreement, notwithstanding that no prejudice was caused to any person by the contravention? If the court had the discretion conferred by s.127(2) then the agreement and security would be enforceable to the extent permitted by the judge because neither side challenged the exercise of his discretion if he had one.
27. It appears to me that it may be arguable that s.127(3) infringes Article 6(1) and/or Article 1 of the First Protocol set out in Schedule 1 to the Human Rights Act 1998. In the case of Article 6(1) it is arguable that the absolute bar to enforcement in the case of an agreement which does not contain the prescribed terms is a disproportionate restriction on the right of the lender, which exists in all other cases, to have the enforceability of his loan determined by the court. Cf Osman v United Kingdom (1998) 5 BHRC 293 The position is similar in the case of Article 1 of the First Protocol. The money advanced by FCT to Mrs Wilson was its possession. It lent that money to Mrs Wilson on terms, as it thought, that it should be repaid in six months time. It has been deprived of that possession as provided for by law in the form of s.127(3). But does that law strike a fair balance between the demands of the general community and the fundamental right of the individual? Cf Stran Greek Refineries and Stratis Andreadis v Greece (1994) 19 EHRR 293 para 69.
28. If the correct conclusion is that, prima facie, s.127(3) does infringe the rights of FCT I have great difficulty in identifying any process whereby it may "be read and given effect to" in a way which is compatible with those two convention rights as required by s.3 Human Rights Act 1998. In those circumstances the only courses available to the court would be to ignore the point or to make a declaration of incompatibility under s.4 Human Rights Act 1998. But such a declaration would not affect the continued validity of s.127(3) and would not be binding as between FCT and Mrs Wilson. Human Rights Act 1998 s.4(6) Moreover it could only be made after notice has been given to the Crown under s.5(1) and we have heard the further argument the issue plainly requires.
29. The question, then, is whether this court should direct that notice be given to the Crown under s.5 so that we may further consider the possible incompatibility. I consider that we should. If s.127(3) is incompatible then it is for Parliament to consider whether and if so how it should be amended. The fact that any declaration we might make will be of no relevance to the appeal before this court should not, in my view, dissuade us. If this court were to refrain from considering making a declaration of incompatibility in any case in which it would have no impact on the parties before it then, given the terms of s.4(6), it is hard to see any circumstances in which the making of a declaration of incompatibility will be considered at all.
30. For all these reasons I consider that notice should be given to the Crown under s.5 Human Rights Act 1998 and in accordance with the provisions of the relevant Civil Procedure Rules to the effect that the court is considering making a declaration of incompatibility in the two respects to which I have referred. At the same time we should invite the Attorney-General to appoint an amicus curiae to put before the court the argument for making the declarations if they are opposed by the relevant department of the Crown. In the meantime the hearing of the appeal should be adjourned.

Chadwick LJ:

31. The Consumer Credit Act 1974 was enacted, as its long title makes clear, to establish for the protection of consumers a new system of control of traders concerned with the provision of credit and their transactions. The application of the relevant provisions of the Act to the facts in the present case is said to lead to the conclusion, for the reasons which the Vice-Chancellor has set out, that the respondent, a pawnbroker, is obliged to repay to the appellant, Mrs Wilson, the sum of £6,900 which she paid to redeem the BMW car which she had pawned as security for a loan of £5,000 made to her in January 1999; and is left without any remedy against her for the recovery of that loan or any part of it. In the result she will have had the sum of £5,000 from the pawnbroker which she will be under no legal obligation to repay. Provisions which lead to that result, in circumstances in which it cannot be said that the appellant was under any misapprehension as to the nature or terms of the transaction into which she was content – indeed, eager - to enter at the time, might be thought to go some way beyond the protection of any legitimate interest which she might have as a consumer. But, subject to the effect of the Human Rights Act 1998, I agree with the Vice-Chancellor that that is the inescapable consequence of the application of the statutory provisions to the facts in the present case.
32. It is common ground: (i) that the agreement dated 22 January 1999 is a 'personal credit agreement' within section 8(1) of the 1974 Act; (ii) that it is a 'consumer credit agreement' within section 8(2) of the Act; and (iii) that, not being an agreement which falls within section 16 of the Act, it is a 'regulated agreement' – see section 8(3) of the Act. It is an agreement for 'fixed term credit' – see section 10(1) of the Act. The credit under the agreement is provided in such a way as to leave the debtor free to use it as he chooses. So it is not a 'restricted-use credit agreement' within section 11(1) of the Act – see section 11(3).
33. Section 61(1) of the Act sets out circumstances in which a regulated agreement is to be treated as "not properly executed". In particular, section 61(1)(a) provides that a regulated agreement is not properly executed "unless a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner . . .".
34. The relevant regulations, in that context, are the Consumer Credit (Agreements) Regulations 1983 (S.I. 1983/1553), which came into operation on 19 May 1985. The first limb of regulation 6(1) is in these terms:

"The terms specified in Column 2 of Schedule 6 to these Regulations in relation to the type of regulated agreement referred to in Column 1 (and no other terms) are hereby prescribed for the purposes of section 61(1)(a) of the Act (the terms which must be contained in an agreement if a regulated agreement is not to be improperly executed) . . ."

The agreement of 22 January 1999 is an agreement of the type referred to in paragraph 2 of column 1 of schedule 6. The term specified in column 2 in relation to an agreement of that type is "A term stating the amount of the credit". So, in order to answer the question "does the agreement of 22 January 1999 contain all the prescribed terms" it is necessary to ask: "does the agreement contain a term stating the amount of the credit?"

35. Both those questions must be answered in the negative. The agreement of 22 January 1999 does not contain a correct statement of 'the amount of the credit' within the meaning that is to be given to that phrase for the purposes of the 1974 Act and the 1983 Regulations. The reason, as the Vice-Chancellor has already explained, is that the document fee (£250) is "an item entering into the total charge for credit" – see regulation 4(b) of the Consumer Credit (Total Charge for Credit) Regulations 1980 (S.I. 1980/51). It follows that that additional £250 cannot be treated as 'credit' – see section 9(4) of the Act – and so cannot be included in 'the amount of the credit'. For the purposes of the Act and the 1983 Regulations, the amount of the credit provided by the pawnbroker under the agreement of 22 January 1999 is £5,000, not £5,250.
36. That leads to the conclusion that the agreement of 22 January 1999 is 'an improperly-executed regulated agreement'. Section 65(1) of the Act provides that an improperly-executed regulated agreement is enforceable against the debtor "on an order of the court only". Part IX of the Act contains provisions governing the enforcement of agreements by the court. Section 127(3) is in these terms:

"The court shall not make an enforcement order under section 65(1) if section 61(1)(a) (signing of agreements) was not complied with unless a document (whether or not in the prescribed form and complying with regulations under section 60(1)) itself containing all the prescribed terms of the agreement was signed by the debtor or hirer . . ."

That must be read in conjunction with the second limb of regulation 6(1) of the 1983 Regulations. I have already set out the first limb that regulation; the second limb is in these terms:

"The terms specified in Column 2 of Schedule 6 . . . are hereby prescribed for the purposes of . . . section 127(3) (the terms which must be contained in a document before any enforcement order can be made under section 65(1), if section 61(1)(a) was not complied with).

37. Section 61(1)(a) is not complied with "unless a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner". It is only where the document fails to contain all the prescribed terms - whether or not it is in the prescribed form and whether or not it complies with other regulations made under section 60(1) – that section 127(3) of the Act precludes the making of an enforcement order. But where that condition is satisfied, the agreement is "irredeemably unenforceable" – see the observation of Lord Hoffmann in Dimond v Lovell [2000] 2 WLR 1121, at page 1131C.
38. This is such a case. The agreement of 22 January 1999 is an improperly-executed regulated credit agreement. It is unenforceable except by an order of the court – section 65(1). The court is precluded from making an enforcement order - by section 127(3) - because the agreement does not contain a term stating the amount of the credit; that being a prescribed term in relation to an agreement of this type.
39. At first sight, the effect of the agreement being unenforceable was that the claimant was entitled to have the BMW car, which she pawned by way of security, returned to her without payment. Section 113(1) of the Act provides, so far as material, that:

"Where a security is provided in relation to [a] . . . regulated agreement, the security shall not be enforced so as to benefit the creditor . . . , directly or indirectly, to an extent greater . . . than would be the case if the security were not provided and any obligations of the debtor . . . under or in relation to the agreement were carried out to the extent (if any) to which they would be enforced under this Act."

In a case where the obligations of the debtor under the agreement would not be enforced under the Act, the statutory hypothesis is that those obligations would not be carried out; and that, accordingly, the creditor would have received no benefit at all if the security had not been provided. It must follow, in such a case, that the security is not to be enforced so as to benefit the creditor.

40. Does it follow from the fact that the security is not to be enforced that the debtor is entitled to have the property lodged by way of security returned? That turns, I think, on the inter-action between sections 113 and 106. Section 106 is in these terms, so far as material:

"Where, under any provision of this Act, this section is applied to any security provided in relation to a regulated agreement, then, . . . –

(a) the security, so far as it is so provided, shall be treated as never having effect;

(b) any property lodged with the creditor . . . solely for the purposes of the security as so provided shall be returned by him forthwith;

(c) . . . ; and

(d) any amount received by the creditor . . . on realisation of the security shall, so far as it is referable to the agreement, be repaid to the surety.

In that context, "security" means "a mortgage, charge, pledge, bond, debenture, indemnity, guarantee, bill, note or other right provided by the debtor . . . or at his request . . . to secure the carrying out of the obligations of the debtor . . . under the agreement", and "surety" means "the person by whom any security is provided" – see section 189(1) of the Act. It is, I think, reasonably clear that the Act draws a distinction between the pledge – which is the "security" – and the property (the "pawn") which is the subject of the pledge – see the definitions of "pledge" and "pawn" in section 189(1). But, where section 106 applies, the position is plain enough: property pledged or pawned by the debtor as security for his obligations under the agreement must be returned to him forthwith – see paragraph (b).

41. Section 113(3) of the Act requires that:

"Where – (c) in relation to any agreement an application for an order under section . . . 65(1) . . . is dismissed (except on technical grounds only) . . . section 106 shall apply to any security provided in relation to the agreement.

An application which is dismissed by the court shall be taken to be dismissed "on technical grounds only" if the court so certifies – see section 189(1) of the Act.

42. The provisions which I have set out raise two questions: (i) is it open to the court to certify that an application for an enforcement order under section 65(1) of the Act which is dismissed because the court is precluded from making any order under that section - by section 127(3) - has been dismissed 'on technical grounds only'; and, if so, (ii) what is the effect of section 113(1) of the Act in a case where the agreement is held to be unenforceable but on technical grounds only.
43. But for the advent of the Human Rights Act 1998 – which came into effect on 2 October 2000 – I should have no real doubt that the first of those questions should be answered in the negative; and that, accordingly, the second question could not arise. And, if the second question did arise, I would find it very difficult, if not impossible, to hold that a creditor could be entitled to retain property lodged as security in circumstances in which the Act provided that the security is not to be enforced so as to benefit the creditor.
44. Section 3(1) of the 1998 Act requires that, so far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the Convention rights. The section applies to primary and subordinate legislation whenever enacted – see section 3(2).
45. The Convention rights include those conferred by Article 1 in the First Protocol (agreed at Paris on 20 March 1952) to the Convention for the Protection of Human Rights and Freedoms agreed by the Council of Europe at Rome on 4 November 1950 – see sections 1(1)(b) and 21(1) of the Act, and Part II of schedule 1. The Article is in these terms:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

46. If the 1974 Act and the associated regulations have the effect for which the appellant contends in the present case, the respondent pawnbroker is deprived of its right to recover the £5,000 which it lent to the appellant; is deprived of the right which it would otherwise have enjoyed to retain possession of the BMW car pledged as security for that loan; and is deprived of its right to retain the £6,900 which the appellant paid to redeem that pledge. In my view it is arguable that that is not a proportionate response, in the present case, to the failure of the agreement to state correctly the amount of the credit. In those circumstances it is necessary, as it seems to me, for this Court to consider whether that argument should prevail, notwithstanding that the point was not taken by the respondent – see section 6(1) and (2) of the Human Rights Act 1998. If what I may call a "non-Convention" interpretation of the primary and subordinate legislation would lead to a result which is incompatible with the respondent's Convention rights, then the Court must ask itself whether it is possible to read and give effect to the legislation in a way which avoids that incompatibility; and, if it is not possible to do so, must go on to consider whether it would be appropriate to make a declaration of incompatibility.
47. For my part, I am not yet persuaded that, if the result to which a "non-Convention" interpretation of the legislation does, undoubtedly, lead is incompatible with the respondent's Convention rights, there is no process of interpretation – permitted by the opening words of section 3(1) . . . "So far as it is possible to do so" – which avoids that result. It seems to me that it might just be possible (with the encouragement and exhortation provided by those words) to hold (i) that dismissal of an application for an enforcement order in the present case was a dismissal 'on technical grounds only' – so that section 106 of the 1974 Act was not engaged; and, if so (ii) that the inter-action of sections 113(1), 113(3) and 106 does enable a distinction to be drawn between 'enforcement' of the security – which is prohibited by section 113(1) – and the right of the creditor to retain possession of the property 'lodged for the purposes of the security'. But I would not wish to decide those questions unless and until satisfied that the result to which the "non-Convention" interpretation leads is incompatible with the respondent's Convention rights.
48. In those circumstances I have no doubt that the appropriate order is that proposed by the Vice-Chancellor. The appeal should be adjourned so that the Court can consider the question of incompatibility. For that purpose notice should be given to the Crown under section 5 of the 1998 Act; and the Attorney-General should be invited to consider the appointment of an amicus curiae to assist the Court.

Rix LJ:

49. I agree with both judgments and with the order proposed by the Vice-Chancellor and Chadwick LJ.

ORDER: Appeal adjourned.